Siemens to cut phone biz costs by €1bn

Sell-off or shut-down still under consideration

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Siemens will reduce costs at its loss-making mobile phone division by €1bn ($1.3bn) to bring the unit back to profitability.

The German giant had already announced plans to cut up to €600m ($793m) during the company's current fiscal year, which ends in September. But today the company's communications division chief, Lothar Pauly, said another €400m ($529m) worth of cuts will be made.

The axe will fall most heavily on marketing and advertising budgets. Also R&D spending will be cut 15 per cent over the next three years.

The group will introduce 15 new handsets in 2005 - by comparison, Nokia will launch 40 models this year.

Siemens' mobile phone business lost €143m ($189m) during its most recently completed quarter, Q1 FY2005. Quarterly sales fell year on year from €1.49bn ($1.97bn) to €1.17bn ($1.55), down 21.5 per cent.

Unit shipments fell from 15.2m units in Q1 FY2004 to 13.5m in the three months to 31 December 2004. The company's average handset selling price fell year on year from €98 ($129) to €86 ($113), a figure Pauly described as "dismal".

He re-iterated that Siemens is still considering selling off its mobile phone business, spinning it off, merging it with another company, or even shutting it down altogether. The cost-cutting programme announced today, in addition to the cost-reduction schemes already in place, make all but the last of these options more likely.

In the past four months or so, it has been claimed Siemens entered into exploratory sell-off talks with South Korea's LG and, separately, China's Ningbo Bird. However, both parties have denied any interest in the loss-making German operation. ®